What I’m Watching This Week – 24 December 2018

The tech-heavy Nasdaq had been the only benchmark index to have exceeded its 2017 closing value. That is no longer the case, as an 8.36% drop last week put the Nasdaq more than 8.0% below its value at the end of last year and firmly in bear market territory. Investors saw the potential of a federal government shutdown and an implied warning from the Federal Reserve that the economy may be slowing as reason to seek shelter from stocks. Besides the Nasdaq, each of the other benchmark indexes listed here suffered large weekly losses, led by the small caps of the Russell 2000, followed by the large caps of the S&P 500 and the Dow. The Global Dow fell “only” 4.86% and is over 13% below its 2017 year-end value.

Oil prices plummeted last week, closing at $45.42 per barrel by late Friday, down from the prior week’s closing price of $51.16 per barrel. The price of gold (COMEX) increased last week, closing at $1,259.10 by last Friday evening, up from the prior week’s price of $1,242.20. The national average retail regular gasoline price was $2.369 per gallon on December 17, 2018, $0.052 lower than the prior week’s price and $0.081 less than a year ago.

Market/Index

2017 Close

Prior Week

As of 12/21

Weekly Change

YTD Change

DJIA

24719.22

24100.51

22445.37

-6.87%

-9.20%

Nasdaq

6903.39

6910.66

6332.99

-8.36%

-8.26%

S&P 500

2673.61

2599.95

2416.62

-7.05%

-9.61%

Russell 2000

1535.51

1410.81

1292.09

-8.42%

-15.85%

Global Dow

3085.41

2813.48

2676.76

-4.86%

-13.24%

Fed. Funds target rate

1.25%-1.50%

2.00%-2.25%

2.25%-2.50%

25 bps

100 bps

10-year Treasuries

2.41%

2.89%

2.78%

-11 bps

37 bps

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic Headlines

The final estimate for the third-quarter gross domestic product showed the economy grew at an annual rate of 3.4%. This estimate is 0.1 percentage point below the second estimate, as personal consumption expenditures and exports were revised down and private inventory investment was revised up. The GDP increased 4.2% in the second quarter. Gross domestic income (the sum of all income earned and costs incurred while producing goods and services) increased 4.3% in the third quarter, compared with an increase of only 0.9% in the second quarter. Growth in consumer spending, which accounts for about two-thirds of the total economic output, grew at a rate of 3.5% in the latest estimate, down from the prior estimate of 3.6%. Also of note, exports, which add to the GDP, fell 4.9% in this estimate, compared to a decline of 4.4% in the prior estimate. Imports, which subtract from the GDP, rose 9.3%.

Citing strength in the labor market and rising economic activity, the Federal Reserve raised the target range for the federal funds rate 25 basis points to 2.25%-2.50%. This is the highest range since the spring of 2008. The Fed also modified its projection for future rate adjustments, now calling for two rate hikes in 2019, down from three such hikes as previously contemplated.

Consumer spending increased 0.4% in November following an 0.8% rise in October. Both pre-tax and after-tax personal income rose 0.2% in November after increasing 0.5% the prior month. Prices for consumer goods and services advanced a marginal 0.1% in November and are up 1.8% from November 2017 — below the Fed’s 2.0% inflation target rate.

New orders for manufactured durable goods increased 0.8% in November following a 4.3% advance in October. Transportation equipment, up three of the last four months, drove the increase, jumping up 2.9%. Excluding transportation, new orders decreased 0.3% for November.

In a sign that the housing market finally may be picking up steam, November saw a 5.0% increase in building permits over October’s total. Housing starts (3.2%) and housing completions (0.4%) also improved last month over October.

Sales of existing homes increased for the second month in a row after expanding by 1.9% in November over the prior month’s mark. Existing home sales are still off by 7.0% from a year ago. The median existing-home price in November was $257,700, up 4.2% from November 2017 ($247,200). The median existing-home price in October was $255,400. However, total inventory decreased to 1.74 million, down from 1.85 million existing homes available for sale in October. Unsold inventory is at a 3.9-month supply at the current sales pace, down from 4.3 last month and up from 3.5 months a year ago.

For the week ended December 15, there were 214,000 new claims for unemployment insurance, an increase of 8,000 from the previous week’s level. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended December 8. The advance number of those receiving unemployment insurance benefits during the week ended December 8 was 1,688,000, an increase of 27,000 from the prior week’s level.

Eye on the Week Ahead

The Christmas holiday week is a slow one for economic reports. The November report on the goods trade deficit is expected to show an expansion of the difference between the value of imports and exports. Also, the November figures on new home sales are out this week. No significant change is expected in what has been a mundane housing market for much of the year.